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House prices up by a fifth in just two years

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Written by: Shekina Tuahene
02/03/2022
House prices have risen 20% in just two years as they now exceed £260,000 for the first time.

The average price of a home in the UK in February is now £260,230, a yearly difference of £29,000, according to the Nationwide house price index.

Compared to January, this was a monthly uptick of 1.7% from the average of £255,556 in that month. 

This latest analysis also means the price of a typical home is 20% above averages in February 2020, before the pandemic hit. 

Robert Gardner, Nationwide’s chief economist, said: “Housing market activity has remained robust in recent months, with mortgage approvals continuing to run above pre-pandemic levels at the start of the year. A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices. 

“The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months.” 

Gardner said the strength was “particularly noteworthy” as the squeeze on household incomes led to a drop in consumer confidence. 

He added: “Nevertheless, it is likely that the housing market will slow in the quarters ahead. The squeeze on household incomes is set to intensify, with inflation expected to rise above seven per cent in the coming months. 

“Indeed, there is scope for inflation to rise even further as events in Ukraine threaten to send global energy prices even higher. Assuming that labour market conditions remain strong, the Bank of England is also likely to raise interest rates, which will exert a further drag on the market if this feeds through to mortgage rates.” 

He said housing affordability was already stretched with the price of a typical home now equivalent to 6.7 times average earnings, up from 5.8 in 2019. 

Karen Noye, mortgage spokesperson at Quilter also said the war in Ukraine could put the brakes on increasing house prices if energy prices rose further. 

She said the impact on house prices would not be seen for a few months but said it was unlikely they were robust enough to cope with the “unfolding crisis” against the backdrop of an economy recovering from the pandemic. 

Noye added: “There is a chance that house prices plateau rather than drop. Until housing stock is meaningfully replenished by the government and the big housebuilders, house prices will remain high as there is simply still too much demand and too little stock.” 

Amanda Aumonier, head of mortgage operations at Trussle, said while it was good news that house price growth was steady, homeowners continued to face increasing pressure on everyday bills. 

She added: “As people take stock of their current financial situation and manage the increased cost of living, this could impact the pipeline of homebuyers, decreasing the demand on property and the likelihood of bidding wars which could, together, halt any further growth in house prices.” 

Housing market plot twist 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The housing market produced an unexpected plot twist in February, hitting record high prices amongst an unspeakably gloomy backdrop. Buyers defied the biggest squeeze on incomes in a generation, rising interest rates, increasingly expensive houses and a drop in confidence, to snap up their dream property.  

“But this trend is highly unlikely to last.” 

Coles said buyers were taking advantage of a small window of opportunity as mortgage rates were not notably higher in February than they were the month before. 

“As February’s rate rise feeds through into new mortgages, we could see demand slow,” she added. 

Toby Fields, co-founder of Langley House Mortgages: “The largest ever annual increase in cash terms in over 30 years is frankly mind-boggling and is almost certainly being caused by the radical imbalance between supply and demand. Though the cost of living and interest rates are rising, the one thing that isn’t is the number of houses for sale. Frighteningly low stock levels are supporting prices and keeping the market strong.

“The only way prices will fall is through a surplus of supply and that’s unlikely any time soon given the glacial pace at which we build new homes.”

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